A few months into the new post-Brexit economic order and the effects have really started to hit home. For many, the transition has been anything but painless. Examples of delays, extra costs, paperwork, red tape and general confusion have been widely reported in the media.
In the midst of all of these unwelcome developments, many UK retailers are having to carefully consider how they structure their business in order to continue successfully operating in Europe.
Changes to trading between the UK and Europe post-Brexit
While some logistical challenges may be down to teething problems that will be addressed over time, we do know that there will be permanent changes that will affect trading between the UK and Europe.
- Border delays: there’s still lots of debate around how much of an issue this is likely to be in the months and years ahead. However, we can safely say that goods won’t flow as quickly and freely over the UK to EU borders as before.
- Paperwork: much less in dispute is the need for additional paperwork imposed by Brexit. Retailers may be partly insulated from part of the job of identifying and generating the right documents and forms, a burden which falls more heavily on couriers and freight forwarding agents, but there’s still plenty to consider.
- Potential tariffs: while the UK EU trade deal allows for tariff free trade, this only applies to goods that originate from either the UK or the EU. Goods imported from external ‘third countries’ will attract tariffs. Mistakes made in proving that exported products comply with rules of origin requirements can lead to unexpected charges, costs and delays.
- Cost: one way or another, all of the above translates into additional costs. These include indirect costs (the extra time taken to understand and comply with changing the arrangements) and direct costs (extra tariffs if applicable plus extra costs imposed by carriers and other suppliers operating a more complex logistics process).
Faced with all of this, some UK retailers are simply throwing in the towel, and no longer selling to Europe. In some cases, they’re no doubt right to do so. If EU revenues are relatively small, and the cost of mitigating the problems is large, then it makes no business sense to continue. For some industries, such as shellfishing, the obstacles and costs can be so great that they are existential in nature.
The UK e-commerce industry post-Brexit
E-commerce has been one of the UK’s standout industries in recent decades, and for larger, more established retailers, it absolutely makes sense to continue selling in Europe. The question then becomes how can retailers structure their business and operations to most effectively navigate the pitfalls, and continue to operate profitably in the post-Brexit era?
This question has left many scratching their heads. Retailers will need to respond to changes to their shipping arrangements, whether these are regulatory, technical or commercial in nature. Addressing some of the challenges may require retailers to consider relocating some of their operations abroad, a move that the government itself appears to believe is necessary.
We take a closer look at several of the approaches that may be taken, what the challenges, advantages and disadvantages of each might be. It’s important to stress however, that Realtime Despatch doesn’t have speciality expertise in the regulatory aspects of international shipping and customs, so the ideas in this article should be seen as thoughts worth considering rather than firm advice.
Shipping via couriers
Couriers are on the frontline of Brexit-related changes, and are themselves continuing to adapt to new arrangements. Retailers who exported to the EU before Brexit had to introduce many changes from January and will continue to do so. In an earlier article we described some of the preparations required.
Even in the first couple of months of 2021 we’ve seen carriers introduce many small changes to ease the pain around shipping into Europe. The obvious one was to tighten paperwork requirements to ensure close compliance with customs regulations. Many carriers are exploring or introducing a switch to prepaid delivery duty for some of their consignment loads, offering a more predictable and stress-free solution to customers.
But even with all steps followed to the letter, your EU customers are still – to some extent – at the mercy of possible border delays, or worse still, unexpected problems getting goods through customs; especially where road borders are used. Another big risk is the potential for increased carriage costs to undermine the competitiveness of UK retailers in Europe.
In spite of this, we expect that most retailers, especially smaller ones, will need to continue to ship directly from the UK. For this to work successfully, retailers need to have product and shipping documentation well organised. An important aspect of this challenge is around IT systems. Having a warehouse management system (WMS) with strong courier integration, which can respond quickly to changes, is a huge advantage here.
While your WMS provider will need to adapt to changes in the courier landscape, the depth of their expertise will be limited. It’s important therefore that you continue to maintain a close working relationship with your carrier so that you can be kept fully informed of modifications.
For multinational companies with established operations in the EU, Brexit presents much less of a challenge. For them it’s all about fine tuning the details. For businesses that don’t have a European presence, one choice is to set up an EU operation and move some of their staff abroad. This option makes sense for large companies, but is very expensive.
For many, establishing a relationship with a 3PL is a far more affordable alternative. We have several 3PL customers operating out of the Netherlands and Belgium who provide this kind of service, and expect this to be a big growth area in the next few years.
Next we consider the fulfilment models you could choose to adopt, and how these would fit into your supply chain. UK retailers who sell into the EU will also either be running their own warehouse in the UK or using a UK-based 3PL to provide this service. The question then becomes to what extent, and for what activities, you continue to use your existing UK operation in handling EU fulfilment.
The options that stand out here are:
- Receive into UK, and despatch (to end customers) from UK
- Receive into UK, prepack in the UK, and despatch to end customers from the EU
- Receive into UK, bulk transport into the EU, and despatch to end customers from the EU
- Receive into EU, despatch from the EU
Each of these alternatives has its own set of advantages and costs, and situations for which it will be most likely to be applicable.
Receive into UK, and ship from UK
This is the ‘continue as you were’ approach, where you continue to operate a UK-based fulfilment operation, with stock received into your UK warehouse and dispatched (using international couriers) to the EU.
Receive into UK, prepack in UK, send to consumer from EU
With this option your goods are received into your UK warehouse, with goods assembled and pre-packed there. Rather than being sent straight to end customers in the EU using international carriers, they’re instead placed in generic parcels, which are shipped in bulk to a processing depot in the EU. From there, the parcels are over-labelled for dispatch to end users via EU-based carriers.
This approach may suit retailers sending a high volume of low value shipments, for which the per parcel price of a traditional courier may be prohibitive.
This solution, however, isn’t perfect from the end customer’s point of view, in that they will still experience whatever delay occurs in the border crossing.
There are still significant extra costs in providing this solution, as a EU-based 3PL will need to be contracted to receive, relabel and dispatch parcels received. This will require integration between systems to allow for the 3PL to prepare the courier labels for onward shipping. However, the additional 3PL costs are likely to be less than a full blown EU-based pick, pack and despatch operation that will also require the retailer’s goods to be received and stored in an EU warehouse. The first of the two fulfilment options based on this model are described next.
Receive into UK, bulk transport into EU, ship from EU
In this case an EU-based 3PL has a wider remit. Instead of receiving prepacked parcels, the 3PL receives stock in bulk, storing until it can be matched up with incoming customer orders.
This approach is optimal from the end customer’s point of view, as goods will typically already have crossed the UK to EU border before they are even ordered. This option would however be more expensive than the previously laid out option, for the reasons explained above.
As with the previous approach, some system integration will be required, but as it requires information to be exchanged between warehouses at the product rather than system level, it will be simpler than the option involving prepacked shipments.
For this model, the big challenge is around inventory management: deciding how much of each product to ship in advance to the EU warehouse. It may turn out that some products end up with substantial excess stock in the EU, but out of stock in the UK, or vice versa.
For retailers with large catalogues, it may not make sense to have their entire catalogue prestocked in the EU warehouse, in which case the retailer would need to decide between shipping these products prepacked from the UK, directly to end customers from the UK, or to not sell these products at all to EU customers.
Receive into EU, ship from the EU
This extends the previous option by redirecting the supplier arrangement for goods to be sold. Instead of receiving stock into the UK warehouse, the stock would be received directly from suppliers into the EU warehouse for onward sale to EU customers.
For the end users in the EU, this approach has the same benefits as the previous option. Both involve similar challenges in terms of decision-making around inventory. Here, however, changes to inventory allocation between warehouses would need to be expressed through external supplier arrangements, a trickier means of wielding direct influence.
From a cost point of view, there are two cases where the benefits of this approach may be compelling. The first is where the suppliers or manufacturers of the products are based in the EU. Here, this approach avoids crossings altogether.
The second is when the goods originate from outside of the UK and EU. Depending on the nature and source of the goods, receiving these into the UK may itself result in a customs charge. As the UK to EU free trade agreement specifically excludes goods that don’t originate from either the UK or the EU, the retailer may be liable for an additional customs charge when moving the stock from the UK to the EU. By receiving products from suppliers in third countries directly into the EU, the retailer at least is able to avoid having these goods having to negotiate two customs borders.
From the 3PL’s point of view, the difference between receiving stock from suppliers rather than the retailer itself may be subtle, but it certainly involves a loss of control for the retailer. The retailer is no longer able to directly inspect goods as they’re received from suppliers, and dealing with discrepancies and returns could be more problematic. Here it’s critical that the retailer is able to build and rely on a strong relationship with a reputable, professional 3PL that is based on trust.
There’s no question that Brexit has greatly raised the bar in terms of the effort, competence and financial resource required to run a successful online retailer operation with exports to the EU.
There are additional strategies that haven’t been discussed here, but will certainly come into play. These include whether to provide local language versions of your website, and whether to use local currency pricing (i.e. Euro) to make your offering more attractive to EU customers. There are advanced fulfilment strategies that can be used to refine your offering, such as the use of cross docking, where stock is received and matched with orders on a ‘just in time’ basis.
What’s clear is that unless your organisation is an existing multinational or a large company with deep pockets, you’ll need strong, trusted partners to help you through the journey. You’ll need a WMS supplier that can rise to the challenges that these new arrangements will throw up, with a robust offering that is flexible and responsive. You may also greatly benefit from setting up a partnership with a 3PL that’s already operating in the EU and able to help you deliver a good service to customers in that market.